Gold Price Forecast: XAU/USD extends the range play heading into key central bank event risks

Gold price witnessed good two-way price swings on Monday and finally settled in the red, near the lower end of a short-term trading range held over the past two weeks. The overnight pullback from levels just above the $2,000 psychological mark was sponsored by the emergence of fresh buying around the US Dollar (USD), which tends to drive flows away from the US Dollar-denominated commodity. The USD Index (DXY) tracks the Greenback against a basket of currencies and shot back closer to a nearly two-week high touched on Friday in reaction to the better-than-expected manufacturing data from the United States (US).

The Institute for Supply Management (ISM) reported that business activity in the US manufacturing sector pulled off a three-year low in April. However, it remained in contraction territory for the sixth month amid higher borrowing costs and tighter credit. However, additional details revealed a build-up of inflation pressures last month. This reaffirmed bets for another 25 basis points (bps) lift-off at the end of Wednesday's two-day Federal Open Market Committee (FOMC) meeting. This, along with news that JPMorgan would buy most of the assets of First Republic Bank, pushed the US Treasury bond yields higher and boosted the USD.

The European Central Bank (ECB), meanwhile, is also expected to deliver another rate hike on Thursday and could surprise with an outsized 50 bps lift-off. Moreover, the markets have been pricing in the prospects for a 25 bps rate hike by the Bank of England (BoE) in May. This further acted as a headwind for the non-yielding yellow metal and contributed to the overnight downfall. That said, growing acceptance that the US central bank will signal a pause in the policy-tightening cycle keeps a lid on any meaningful upside for the USD and assists the XAU/USD to hold steady around the $1,980 level through the Asian session on Tuesday amid looming recession risks.

Traders now look to the release of the flash Eurozone Consumer Price Index (CPI), which, along with the JOLTS Job Openings data from the US, could provide some impetus to the Gold price. The focus, however, will remain on the highly-anticipated FOMC policy decision on Wednesday. The ECB meeting on Thursday will follow this. The market attention will shift to the closely-watched US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report. The key central bank events and the crucial US macro data should help investors to determine the next leg of a directional move for the Gold price.

Technical Outlook

From a technical perspective, the recent range-bound price action constitutes the formation of a rectangle on short-term charts and points to indecision among traders over the near-term trajectory for the XAU/USD. Moreover, neutral oscillators on the daily chart make it prudent to wait for a sustained move in either direction before placing aggressive bets. In the meantime, any subsequent slide might continue to find some support near the $1,970 horizontal level. A convincing break below will be seen as a fresh trigger for bearish traders, making Gold price vulnerable to decline further.

The XAU/USD might then accelerate the fall towards the $1,948 resistance breakpoint, now turned support, en route to the upward-sloping 50-day Simple Moving Average (SMA), currently around the $1,940 area. A convincing break below the latter will expose the $1,900 round-figure mark, which coincides with the 100-day SMA and should act as a strong base for the Gold price.

Conversely, a recovery above the $2,000 mark might continue to confront stiff resistance near the $2,010-$2,012 supply zone, which, if cleared decisively, will negate any near-term negative bias and negate any near-term negative bias and prompt some technical buying. The Gold price might climb to the $2,039-$2,040 region before aiming to challenge the YTD peak, around the $2,048-$2,049 region touched on April 13. A sustained strength beyond the latter will be seen as a fresh trigger for bulls and set the stage for a move towards the 2022 swing high, around the $2,070 region and the $2,074-$2,075 zone, or the all-time high set in August 2020.